What market manipulation is next? Diesel crack spreads?
Hoot of the Day
Treasury Secretary Scott Bessent says the Treasury doesn’t intend to ‘mitigate episodes of acute market stress’ as it foolishly attempts to do just that.
The Wall Street Journal reports Bond Yields Dive After Bessent Steps Up Buybacks
Over the course of the Iran war, the Trump administration has learned it can trigger big declines in the price of oil with well-timed messages predicting imminent peace deals. Now, Treasury Secretary Scott Bessent is trying the same trick with the bond market.
Apparently alarmed by the upward march in long-term yields, the U.S. Treasury said this morning it would at least double repurchases of longer-dated Treasury bonds. Rates dived in reaction, with the yield on 30-year Treasury bonds falling 0.09 percentage point to 5.20%.
But the size of the planned repurchases is miniscule, doubling from $2 billion to $4 billion per operation. In July alone, the Federal budget deficit was $432 billion. The existence of this deficit means the Treasury’s firepower to buy back debt is inherently limited. In effect, it can only buy back long-term bonds by issuing more short-term ones.
To have a sustained impact on long-term yields, there would have to be meaningful deficit reduction, which is unlikely, to say the least, in the current political environment. Alternatively, the unlimited firepower of the Federal Reserve could be brought to bear on the Treasury market in an explicit policy of “yield curve control.”
Similar to what the Bank of Japan did for years, this would involve the Fed stepping in to buy bonds when yields go above a certain threshold. But this would fly in the face of Kevin Warsh’s rhetoric on multiple fronts, including wanting a smaller Fed balance sheet and allowing the market to send clearer signals absent influence from the central bank.
Who Knew?
Someone did because bond yields started drifting lower in advance of the move while the price of oil was rising.
Debt Buyback
Gold and Metals Reaction
Energy Futures
Why the Manipulation Will Fail
Energy isn’t reacting to the news. It’s the catalyst for the news.
Rising oil prices put upward pressure on inflation.
Rising bond yields are the result.
Oil price pressures remain.
Deficit spending and debt pressures remain.
Bessent is targeting a symptom of the problem, many problems actually: Inane war policy, inane tariff policy, deficit spending problems.
Bessent Is a Hypocrite and a Liar
The Treasury doesn’t intend to ‘mitigate episodes of acute market stress’. Yeah right.
Curiously, Bessent is telling Japan that it needs to raise rates to halt rising interest rates in Japan.
Faced with the same scenario, Bessent opts for market manipulation. However, manipulation will not cure budget problems, tariff madness, or a monster diesel crack spread issue.
When Will the Price of Diesel and Gasoline Hit New Record Highs?
This morning at 4:00 AM I asked When Will the Price of Diesel and Gasoline Hit New Record Highs?
Diesel will be first, likely soon.
Diesel was $0.3482 from a new high at the time of my post. Today, the AAA reports the price of diesel has risen from $5.4677 to $5.5042.
The record high is $5.8159. Diesel is now $0.3117 from a record high.
Because oil is up again today, diesel is highly likely to be up again tomorrow.
US Diesel Crack Surpasses $100 a Barrel for the First Time
To understand why diesel is rising much faster than the price of gasoline, please see US Diesel Crack Surpasses $100 a Barrel for the First Time, Farmers Suffer
Record high crack spreads. Serious economic ramifications.
The short answer is there is a shortage of global refining capacity. Bond manipulation sue will not fix that.
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